Figure 20
Total annual values of PPPs reaching financial close by region (EUR billion)
Source: EPEC.
Note: Total annual value in billion euro of PPPs brought to financial close in EU27. 2020 includes deals brought to financial close by 30 June 2020.
Communications projects have represented the second largest area of activity since 2016, with transport typically accounting for the bulk (Figure 21). Since 2016, transport projects have constituted some 56% of the total value of projects and nearly 40% of the number. Activity in 2017 was unusually low on both counts. Over the same period, communication projects have constituted an average of 20% of projects and one-quarter of their value. PPPs in communication essentially involve broadband roll-outs, notably in France but also in Austria, Poland and Greece. While education projects account for nearly one-quarter of the number, the value averaged around 8% of the total for the period.
The number and total value of infrastructure projects rebounded markedly in 2018 and remained at that level throughout the first half of 2020 (Figure 22). Activity from 2019 onwards was predominantly in Western and Northern Member States, after activity in Southern Member States briefly returned to pre-euro area crisis levels in 2018. Activity through the first six months of 2020 reached about half the full-year levels. Compared with the levels for the first six months of previous years, the total value of projects brought to financial close was high in 2020, even if the concentration in Western and Northern Europe rose significantly and the number of projects was lower.
Since 2016, non-PPP project financing has become more important for communications equipment (Figure 23). Utilities – notably energy – remain the principal asset class financed in non-PPP projects, typically accounting for three-quarters of the total value and more than four-fifths of the number of projects. There has been a notable increase in the share of transport and especially communications projects since 2016, with the latter also helping to prop up volumes in the first half of 2020.
Figure 21
Annual distribution of PPP projects reaching financial close by asset class (in %)
Source: EPEC.
Note: Distribution across asset class of the total annual value in euros of PPPs brought to financial close in EU27. 2020 includes deals brought to financial close by 30 June 2020.
Figure 22
Annual value of non-PPP project by country group (EUR billion)
Source: IJ Global.
Note: Total annual value in billion euros of non-PPP projects brought to financial close in EU27. 2020 includes deals brought to financial close by 30 June 2020.
Figure 23
Annual non-PPP project activity by asset share
Source: IJ Global.
Note: Distribution across asset class of the total annual value in euros of non-PPP projects brought to financial close in EU27. 2020 includes deals brought to financial close by 30 June 2020.
Government investment
Government investment showed a mild upward trend in the European Union before the coronavirus outbreak. As a share of GDP, government investment reached 3% in 2019 (from 2.8% in 2016, the lowest level in 25 years) compared with an average of 3.2% for 1995 to 2016. It increased in Western and Northern Europe and in Central and Eastern Europe, but continued to decline slightly in Southern Europe. In 2019, investment spending came to 4.2% of GDP in Central and Eastern Europe, 3.1% in Western and Northern Europe and 2.2% in Southern Europe. The low level of investment was fairly consistent across Southern Europe, without major differences between countries, except Malta, which had a much higher share at 3.8%.[13] The differences among countries in the other regions is much greater, ranging from 3.1% in Lithuania to 6% in Hungary in Central and Eastern Europe, and from 2.3% in Ireland to 4.9% in Sweden for Western and Northern Europe.
In the last three years, capital transfers and investment have fallen below the average witnessed in 1995-2016. Interest spending registered a larger drop, while primary current expenditure is higher than its historical average. This suggests that the wide reduction in the debt service burden has not translated into support for capital spending. The balance between current and capital expenditure, particularly in Southern Europe, has tilted in favour of current spending.
Figure 24
Government investment as a share of GDP
Source: European Commission’s AMECO database, top panel country groups’ time series, bottom panel 2019 vs. 1995-2016 average.
Figure 25
Capital expenditure, primary current expenditure and interest
Source: European Commission’s AMECO database.
The COVID-19 crisis caused current spending to rise notably, which was reflected in the budget plans of EU Member States. EU members first submitted (at the end of April 2020) streamlined versions of their Stability and Convergence Programmes, including a first assessment of the pandemic’s impact on policies and public accounts. Then, around mid-October, members of the euro area submitted their draft budget plans for 2021. Combining these two sources with the European Commission’s autumn economic forecast allows us to assess the pandemic’s impact on fiscal policy.
Current expenditure increased substantially in 2020. Table 1a shows that revenues, as a share of GDP, are roughly constant, meaning that they are declining in line with the contraction in GDP. Total expenditure, on the contrary, is increasing as a share of GDP because of the emergency measures taken by Member States, the vast majority of which go under the heading of primary current expenditure.[14] This category of spending is growing significantly as a share of GDP (from 41.2% to 48.4%) and compared with the 2019 level (up 10.8%). The bulk of the spending is for unemployment benefits and subsidies to support incomes. The jump in current expenditure will be partially re-absorbed in 2021, when its share of GDP should decline to 45.9%. Current spending is also expected to dip in 2021, by 0.2%.
Table 1
Government budgets as a share of GDP, nominal growth rates year-on-year